Thursday, July 08, 2010

LeBronomics: $12m in NY Taxes vs. $0 in Florida?

Business and Media Institute - "While sports reporters have sought agents and teammates for the inside scoop on where NBA superstar free agent LeBron James will sign, there’s another person who may know The King’s next move: his accountant."

Based on a $96 million, five-year contract, here's an estimate of what LeBron James would pay in state income taxes:

New York: $12.34 million

New Jersey: $10.32 million

Ohio: $5.69 million

Florida: $0.00

Update: It's actually a little more complicated, and here's a more thorough tax analysis by Aaron Merchak of The Tax Foundation, concluding that "Even though LeBron's salary would be $10,000 more per game if he stayed in Cleveland, he would be paying $12,500 more in taxes. The rest of the road games are pretty much a wash between the two cities. When playing in California, New York and other destinations, players from Ohio and Florida pay the same, the tax rate of the state they're visiting."

15 Comments:

I don't think this is quite right. My understanding is that professional athletes are paid on a per-game basis. So when they play an away game their wages are deemed to have been earned in the state in which the game takes place. Therefore, only half of Lebron's NY earnings would be paid in NY and he will still pays taxes on his away games with Miami.

Except for NYS he would get credit on his tax return for the taxes paid to other states. The whole way pro athletes are paid is part of the lawyers and accounts full employment law. If you file as a non resident of state X then if your state has an income tax you take a credit for the non resident tax paid. So it then becomes a question of tax rate more than anything else. If a resident of a state with no income tax, you are just out the taxes.

Would his income in NYC exceed his income in FLA enough to offset the taxes? Any NYer can tell you that if he had won a championship (not 2 or 3 or 5) in this basketball hotbed, he would be set for life. NY stars make hair coloring comercials, speak to every organization at dinners and receive front-office jobs until they die.

LeBron's brain-trust was ignorant about how well he would have done had he chosen, and then succeeded just once, in NY. Not enough knowledge.

The emphasis here is on payment of state income taxes, but state income taxes are deductible on Federal returns, so the net tax effect of NY vs FL is $12.34M times the reciprocal of the highest tax bracket of 35% would be about $8M not $12M.

Using this logic, Ohio is a wash. Under NBA rules, LJ can be offered $100M to remain a Cav, so Ohio will get about $6M in taxes and King James will get a $2M credit from Uncle Sam. The extra salary would all go to pay taxes, but cash available after taxes would be the same in assessing whether Fl or OH is best from a tax standpoint.

From what planet do these so called tax experts hail? If truth be told, the NBA salary represents but a third of LeBron's total income after Mickey D's and The Swoosh add to the pile of endorsement income.